There\u2019s a hard truth about being a plan sponsor or a plan provider: you can be doing everything right and still get sued. That\u2019s the world we live in\u2014especially in the retirement plan space. You can dot every \u201ci,\u201d cross every \u201ct,\u201d and follow ERISA to the letter, but none of that guarantees you\u2019ll avoid a courtroom or, at the very least, a legal headache.<\/p>\n
I\u2019ve seen it firsthand. A plan sponsor who took their fiduciary duties seriously\u2014reviewed fees regularly, kept great documentation, and ran a tight ship\u2014still got hit with a lawsuit. Why? Because a participant got confused or upset about something they didn\u2019t understand, and they found a lawyer who was happy to take the case. And guess what? It didn\u2019t matter that the claims had no merit. The lawsuit still needed to be defended. Time was wasted. Legal fees piled up. And stress levels skyrocketed.<\/p>\n
I know a fiduciary who got sued not for something they did, but for something their predecessor did\u2014a guy who literally stole plan assets the year before. No connection, no fault, no wrongdoing\u2014just bad luck and bad timing. That\u2019s what happens when an overly aggressive attorney is looking to make a name or a buck.<\/p>\n
We like to believe that competence is protection, and to an extent, it is. If you\u2019re a plan sponsor or provider doing your job well, you\u2019ll likely come out on the other side of litigation unscathed. But that doesn\u2019t mean you won\u2019t have to go through it. Being right doesn\u2019t prevent the lawsuit. It just improves your odds once you\u2019re in it.<\/p>\n
So yes, there are ways to reduce your risk:<\/p>\n
\u00b7 Document everything.<\/p>\n
\u00b7 Run regular fee benchmarking.<\/p>\n
\u00b7 Stay on top of investments.<\/p>\n
\u00b7 Communicate clearly with participants.<\/p>\n
\u00b7 Hire experienced service providers.<\/p>\n
But let\u2019s be clear\u2014you can reduce risk, but you can\u2019t eliminate it. You can do everything right and still find yourself on the receiving end of a complaint because someone misread a statement or didn\u2019t update their address or just didn\u2019t like what they saw in their account balance.<\/p>\n
In the retirement plan world, doing a good job isn\u2019t always enough. It just means you\u2019ll have a strong defense when the lawsuit comes\u2014which, unfortunately, is sometimes the best we can hope for.<\/p>\n
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